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BOP Yields Lower Deficit of US$379 Million in the First Quarter of 2004


The Philippines’ balance of payments (BOP) for the first quarter of 2004 yielded a deficit of $379 million, much lower than the year-ago deficit of $510 million following the continued strong performance of the current account.  

The current account posted a surplus of $824 million in the first quarter of 2004, significantly higher than the $370 million surplus in the same period in 2003. Steady income flows, largely remittances from overseas Filipino workers (OFWs), coupled with the lower deficits in both the trade-in-goods and services accounts, were behind the more-than-twofold improvement in the current account.           

The income account balance registered a higher surplus of $1,198 million in the first quarter of 2004 primarily on account of higher remittances of OFWs. Boosted by the increased deployment of both higher-paid land-based and sea-based workers, OFW remittances went up by 4.2 percent to $1,917 million.  

The trade-in-goods balance posted a lower deficit of $378 million in the first quarter of 2004 as exports growth exceeded the rise in imports.  Exports of goods expanded by 5.7 percent to $8,930 million attributed mainly to the moderate pick-up in shipments of electronics, and sustained strength in sales of machinery and transport equipment, the country’s leading exports.

 On the other hand, imports expanded by 4.7 percent to $9,308 million, backed by the combined expansion in imports of capital goods and raw materials and intermediate goods. The expansion posted by these two major commodity groups, which accounted for about 82 percent of total imports, reflected what would be the start of a more dynamic domestic economic environment in 2004. In contrast, imports of mineral fuels and lubricants declined by 2.6 percent in the first quarter to $1,038 million, following the 32.9 percent decline in the volume of imports of crude petroleum even as the average world price increased marginally by 1.8 percent from $29.90 per barrel during the first quarter last year to $30.40 per barrel in the first quarter of this year. The first quarter 2004 volume of crude petroleum imports declined to 16.1 million barrels from 24.0 million barrels in the same quarter last year following the hefty build-up of oil inventory as a precautionary measure to the Iraq war. 

Meanwhile, the deficit in the trade-in-services account in the first quarter at $143 million narrowed by more than half the deficit registered in the same quarter in 2003 owing to higher receipts from travel and communication services. Net inflows from travel started to rebound in the third quarter last year and continued to gain momentum to end the first quarter with a 123.5 percent growth to $362 million.

The capital and financial account, on the other hand, yielded a net outflow of $476 million in the first quarter, higher than the net outflow of $365 million in the same period in 2003.  The deterioration was due to the significant declines in both direct and portfolio investment inflows, which were, however, tempered by lower outflows in other investments during the quarter.  

The direct investment account posted a net outflow of $36 million, a reversal from the $37 million surplus registered in the same period last year. This developed following the sell-off by a non-resident investor of its stakes in a large food manufacturing company to a resident firm, which overshadowed the 17.9 percent increase in new placements in equity capital. Direct investment flows are expected to improve after the May presidential election. Moreover, the approval in March 2004 of the Investments Priorities Plan for 2004 that provides a package of incentives is expected to enhance the country’s investment climate.

Similarly, weaker net portfolio investment inflows at $7 million were posted in the first quarter of the year, in contrast to the $417 million net inflow in the comparable quarter in 2003. This was largely on account of the bond repayments by private corporates, which negated the impact of increased non-resident investments in the equities market and issuances of the government and government-owned-and-controlled corporations (GOCCs).

Meanwhile, there was a notable reduction in the net outflow in the other investment account in the first quarter to $443 million, due largely to the inflows from local banks’ short-term foreign loans and inter-bank borrowings as well as the private sector’s short-term loans to pay for their import bills.

Reflecting all the external payments developments, the BSP’s gross international reserves (GIR) as of end-March 2004 stood at a comfortable level of $16.3 billion, adequate to cover 4.5 months’ worth of imports of goods and payment of services and income. Based on other reserve coverage measures, the level of reserves was 2.7  times the amount of the country’s short-term external debt based on original maturity or, alternatively, 1.5 times the amount of short-term external debt based on residual maturity.

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